ENTREE GOLD INC, 20-F/A filed on 3/28/2014
Amended Annual and Transition Report (foreign private issuer)
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2013
Document And Entity Information
 
Entity Registrant Name
ENTREE GOLD INC 
Entity Central Index Key
0001271554 
Document Type
20-F 
Document Period End Date
Dec. 31, 2013 
Amendment Flag
false 
Current Fiscal Year End Date
--12-31 
Is Entity a Well-known Seasoned Issuer?
No 
Is Entity a Voluntary Filer?
No 
Is Entity's Reporting Status Current?
Yes 
Entity Filer Category
Smaller Reporting Company 
Entity Public Float
$ 34,478,890 
Entity Common Stock, Shares Outstanding
146,734,385 
Document Fiscal Period Focus
FY 
Document Fiscal Year Focus
2013 
CONSOLIDATED BALANCE SHEETS (USD $)
Dec. 31, 2013
Dec. 31, 2012
ASSETS
 
 
Cash and cash equivalents (Note 3)
$ 46,701,216 
$ 4,255,508 
Receivables
203,346 
223,722 
Prepaid expenses
751,140 
779,605 
Total current assets
47,655,702 
5,258,835 
Equipment (Note 5)
288,943 
539,567 
Mineral property interests (Note 6)
48,806,565 
57,616,924 
Reclamation deposits
491,808 
606,155 
Other assets
152,087 
152,049 
Total assets
97,395,105 
64,173,530 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
Accounts payable and accrued liabilities
1,261,206 
559,579 
Loans payable to Oyu Tolgoi LLC (Note 7)
5,978,133 
5,563,657 
Deferred revenue (Note 8)
37,638,211 
Deferred income tax liabilities (Note 11)
7,340,516 
9,722,384 
Total liabilities
52,218,066 
15,845,620 
Stockholders' equity
 
 
Common stock, no par value, unlimited number authorized, (Note 9) 146,734,385 (December 31, 2012 - 128,877,243) issued and outstanding
177,065,075 
167,428,814 
Additional paid-in capital
20,095,161 
18,672,864 
Accumulated other comprehensive income (Note 13)
465,615 
3,253,019 
Accumulated deficit during the exploration stage
(152,448,812)
(141,026,787)
Total stockholders' equity
45,177,039 
48,327,910 
Total liabilities and stockholders' equity
$ 97,395,105 
$ 64,173,530 
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
Dec. 31, 2013
Dec. 31, 2012
Stockholders equity:
 
 
Common stock, par value
$ 0 
$ 0 
Common stock, Unlimited authorized shares
   
   
Common stock, issued shares
146,734,385 
128,877,243 
Common stock, outstanding shares
146,734,385 
128,877,243 
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (USD $)
12 Months Ended 213 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2013
EXPENSES
 
 
 
 
Exploration (Note 7)
$ 6,102,992 
$ 8,234,354 
$ 17,679,174 
$ 99,092,669 
General and administration
6,638,262 
5,236,226 
5,766,102 
59,985,511 
Consultancy and advisory fees
1,941,130 
1,941,130 
Impairment of mineral property interests
437,732 
486,746 
531,005 
1,455,483 
Depreciation
102,941 
150,654 
196,221 
1,530,008 
Gain on sale of mineral property interests
(451,892)
(104,914)
(1,574,523)
(2,131,329)
Foreign exchange loss (gain)
(1,113,728)
(187,773)
491,504 
(1,032,003)
Loss from operations
(13,657,437)
(13,815,293)
(23,089,483)
(160,841,469)
Gain on sale of investments
3,326,275 
3,326,275 
Interest income
431,596 
190,449 
342,343 
5,934,864 
Interest expense (Note 5)
(260,453)
(229,359)
(151,952)
(714,771)
Loss on equity investee (Note 5)
(146,051)
(1,012,156)
(2,397,085)
(5,076,836)
Fair value adjustment of asset backed commercial paper
147,564 
(2,184,967)
Loss from operations before income taxes
(13,484,781)
(14,866,359)
(21,969,902)
(159,556,904)
Current income tax expense
(319,112)
(152,190)
(471,302)
Deferred income tax recovery (expense) (Note 11)
2,381,868 
(329,770)
4,981,884 
7,579,394 
Net loss
(11,422,025)
(15,196,129)
(17,140,208)
(152,448,812)
Comprehensive loss:
 
 
 
 
Net loss
(11,422,025)
(15,196,129)
(17,140,208)
(152,448,812)
Unrealized loss on available for sale securities (Note 12)
(2,747,997)
Foreign currency translation adjustment (Note 13)
(2,787,404)
1,351,668 
(1,101,366)
465,615 
Comprehensive loss
$ (14,209,429)
$ (13,844,461)
$ (20,989,571)
$ (151,983,197)
Basic and diluted net loss per share
$ (0.08)
$ (0.12)
$ (0.15)
 
Weighted average number of common shares outstanding
143,847,888 
128,650,791 
115,978,815 
 
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
12 Months Ended 213 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2013
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
Net loss
$ (11,422,025)
$ (15,196,129)
$ (17,140,208)
$ (152,448,812)
Items not affecting cash:
 
 
 
 
Depreciation
102,941 
150,654 
196,221 
1,530,008 
Stock-based compensation
1,422,297 
1,207,878 
991,161 
24,176,057 
Loss from equity investee
146,051 
1,012,156 
2,397,085 
5,076,836 
Interest expense
260,453 
229,359 
151,952 
714,771 
Deferred income tax expense (recovery)
(2,381,868)
329,770 
(4,981,884)
(7,579,394)
Gain on sale of mineral property interest
(451,892)
(104,914)
(1,574,523)
(2,131,329)
Impairment of mineral property interests
437,732 
486,746 
531,005 
1,455,483 
Gain on sale of investments
(3,326,275)
(3,326,275)
Fair value adjustment of asset backed commercial paper
2,332,531 
Escrow shares compensation
2,001,832 
Mineral property interest paid in stock and warrants
4,052,698 
Other items not affecting cash
(875,087)
(111,618)
(111,807)
(941,288)
Changes in assets and liabilities:
 
 
 
 
Receivables
6,109 
209,098 
(126,216)
(114,846)
Prepaid expenses
(22,569)
197,321 
165,271 
(675,809)
Other assets
(3,592)
22,913 
19,321 
Accounts payable and accrued liabilities
760,600 
(1,235,090)
438,197 
1,038,004 
Deposit on metal credit delivering obligation
40,000,000 
40,000,000 
Net cash provided by (used in) operating activities
27,979,150 
(12,801,856)
(22,390,021)
(84,820,212)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
Proceeds from issuance of capital stock
9,722,897 
1,628,583 
14,683,949 
140,726,891 
Share issue costs
(86,636)
(108,058)
(1,065,065)
(4,952,907)
Net cash provided by financing activities
9,636,261 
1,520,525 
13,618,884 
135,773,984 
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
Mineral property interests
(50,000)
(3,910,000)
(777,517)
(4,954,610)
Reclamation deposits
115,180 
(207,962)
(62,127)
(303,970)
Short-term investments
5,076,271 
(5,076,271)
Acquisition of equipment
(7,623)
(35,893)
(223,176)
(2,131,235)
Proceeds from sale of royalty interest
5,000,000 
5,000,000 
Proceeds from sale of mineral property interest
451,892 
104,914 
1,491,391 
2,048,197 
Purchase of asset backed commercial paper
(4,031,122)
Acquisition of PacMag Metals Limited
(7,465,495)
Cash acquired on acquisition
837,263 
Proceeds from sale of investments
5,734,895 
5,734,895 
Net cash provided by (used in) investing activities
5,509,449 
1,027,330 
1,087,195 
(5,266,077)
Effect of foreign currency translation on cash and cash equivalents
(679,152)
(2,689)
899,971 
1,013,521 
Change in cash and cash equivalents during the period
42,445,708 
(10,256,690)
(6,783,971)
46,701,216 
Cash and cash equivalents, beginning of the year
4,255,508 
14,512,198 
21,296,169 
Cash and cash equivalents, end of the year
46,701,216 
4,255,508 
14,512,198 
46,701,216 
Cash paid for interest during the period
Cash paid for income taxes during the period
$ 0 
$ 0 
$ 0 
$ (152,190)
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (USD $)
Common Stock
Additional Paid-In Capital
Accumulated Other Comprehensive Income / Loss
Accumulated Deficit During the Exploration Stage
Total
Beginning Balance - Amount at Jul. 18, 1995
$ 0 
$ 0 
$ 0 
$ 0 
$ 0 
Beginning Balance - Shares at Jul. 18, 1995
 
 
 
 
Private Placements, Shares
4,200,000 
 
 
 
 
Private Placements, Amount
60,852 
   
   
   
60,852 
Acquisition of mineral property interests, Shares
3,200,000 
 
 
 
 
Acquisition of mineral property interests, Amount
147,520 
   
   
   
147,520 
Foreign currency translation adjustment
   
   
(756)
   
(756)
Net loss
 
 
 
(175,714)
(175,714)
Ending Balance, Amount at Apr. 30, 1996
208,372 
   
(756)
(175,714)
31,902 
Ending Balance, Shares at Apr. 30, 1996
7,400,000 
 
 
 
 
Private Placements, Shares
3,880,000 
 
 
 
 
Private Placements, Amount
274,718 
   
   
   
274,718 
Foreign currency translation adjustment
   
   
(8,568)
   
(8,568)
Net loss
 
 
 
(56,250)
(56,250)
Ending Balance, Amount at Apr. 30, 1997
483,090 
   
(9,324)
(231,964)
241,802 
Ending Balance, Shares at Apr. 30, 1997
11,280,000 
 
 
 
 
Foreign currency translation adjustment
   
   
(5,216)
   
(5,216)
Net loss
   
   
   
(33,381)
(33,381)
Ending Balance, Amount at Apr. 30, 1998
483,090 
   
(14,540)
(265,345)
203,205 
Ending Balance, Shares at Apr. 30, 1998
11,280,000 
 
 
 
 
Foreign currency translation adjustment
   
   
(3,425)
   
(3,425)
Net loss
   
   
   
(40,341)
(40,341)
Ending Balance, Amount at Apr. 30, 1999
483,090 
   
(17,965)
(305,686)
159,439 
Ending Balance, Shares at Apr. 30, 1999
11,280,000 
 
 
 
 
Exercise of stock options, Shares
1,128,000 
 
 
 
 
Exercise of stock options, Value
113,922 
   
   
   
113,922 
Escrow shares compensation
   
41,593 
   
   
41,593 
Foreign currency translation adjustment
   
   
(896)
   
(896)
Net loss
   
   
   
(154,218)
(154,218)
Ending Balance, Amount at Apr. 30, 2000
597,012 
41,593 
(18,861)
(459,904)
159,840 
Ending Balance, Shares at Apr. 30, 2000
12,408,000 
 
 
 
 
Foreign currency translation adjustment
   
   
(5,627)
   
(5,627)
Net loss
   
   
   
(18,399)
(18,399)
Ending Balance, Amount at Apr. 30, 2001
597,012 
41,593 
(24,488)
(478,303)
135,814 
Ending Balance, Shares at Apr. 30, 2001
12,408,000 
 
 
 
 
Foreign currency translation adjustment
   
   
(2,561)
   
(2,561)
Net loss
   
   
   
(22,490)
(22,490)
Ending Balance, Amount at Apr. 30, 2002
597,012 
41,593 
(27,049)
(500,793)
110,763 
Ending Balance, Shares at Apr. 30, 2002
12,408,000 
 
 
 
 
Private Placements, Shares
7,500,000 
 
 
 
 
Private Placements, Amount
1,351,055 
   
   
   
1,351,055 
Exercise of warrants, Shares
12,500 
 
 
 
 
Exercise of warrants, Value
3,288 
   
   
   
3,288 
Agent's finder fee, Shares
310,000 
 
 
 
 
Agent's finder fee, Value
39,178 
   
   
   
39,178 
Finder's fee for mineral property interests, Shares
100,000 
 
 
 
 
Finder's fee for mineral property interests, Value
35,827 
   
   
   
35,827 
Debt settlement, Shares
135,416 
 
 
 
 
Debt settlement, Amount
45,839 
5,252 
   
   
51,091 
Agent's warrants
   
16,877 
   
   
16,877 
Escrow shares compensation
   
40,205 
   
   
40,205 
Stock-based compensation
   
16,660 
   
   
16,660 
Share issuance costs
(211,207)
   
   
   
(211,207)
Foreign currency translation adjustment
   
   
73,080 
   
73,080 
Net loss
   
   
   
(1,073,320)
(1,073,320)
Ending Balance, Amount at Apr. 30, 2003
1,860,992 
120,587 
46,031 
(1,574,113)
453,497 
Ending Balance, Shares at Apr. 30, 2003
20,465,916 
 
 
 
 
Private Placements, Shares
16,352,942 
 
 
 
 
Private Placements, Amount
10,891,160 
   
   
   
10,891,160 
Exercise of stock options, Shares
35,000 
 
 
 
 
Exercise of stock options, Value
18,730 
(4,026)
   
   
14,704 
Exercise of warrants, Shares
3,730,372 
 
 
 
 
Exercise of warrants, Value
1,316,664 
(6,443)
   
   
1,310,221 
Agent's corporate finance fee, Shares
100,000 
 
 
 
 
Agent's corporate finance fee, Value
64,192 
8,384 
   
   
72,576 
Agent's warrants
   
370,741 
   
   
370,741 
Escrow shares compensation
   
1,949,878 
   
   
1,949,878 
Stock-based compensation
   
414,847 
   
   
414,847 
Share issuance costs
(1,302,715)
   
   
   
(1,302,715)
Acquisition of mineral property interests, Shares
5,000,000 
 
 
 
 
Acquisition of mineral property interests, Amount
3,806,000 
   
   
   
3,806,000 
Foreign currency translation adjustment
   
   
1,950 
   
1,950 
Net loss
   
   
   
(12,505,759)
(12,505,759)
Ending Balance, Amount at Dec. 31, 2003
16,655,023 
2,853,968 
47,981 
(14,079,872)
5,477,100 
Ending Balance, Shares at Dec. 31, 2003
45,684,230 
 
 
 
 
Private Placements, Shares
4,600,000 
 
 
 
 
Private Placements, Amount
3,846,521 
   
   
   
3,846,521 
Exercise of stock options, Shares
50,000 
 
 
 
 
Exercise of stock options, Value
26,180 
(8,238)
   
   
17,942 
Exercise of warrants, Shares
533,836 
 
 
 
 
Exercise of warrants, Value
186,208 
(13,197)
   
   
173,011 
Warrants issued for cancellation of price guarantee
   
129,266 
   
   
129,266 
Escrow shares compensation
   
405,739 
   
   
405,739 
Stock-based compensation
   
1,530,712 
   
   
1,530,712 
Share issuance costs
(21,026)
   
   
   
(21,026)
Foreign currency translation adjustment
   
   
132,501 
   
132,501 
Net loss
   
   
   
(5,528,114)
(5,528,114)
Ending Balance, Amount at Dec. 31, 2004
20,692,906 
4,898,250 
180,482 
(19,607,986)
6,163,652 
Ending Balance, Shares at Dec. 31, 2004
50,868,066 
 
 
 
 
Private Placements, Shares
7,542,410 
 
 
 
 
Private Placements, Amount
13,538,097 
   
   
   
13,538,097 
Exercise of stock options, Shares
772,000 
 
 
 
 
Exercise of stock options, Value
1,238,581 
(532,908)
   
   
705,673 
Exercise of warrants, Shares
10,456,450 
 
 
 
 
Exercise of warrants, Value
10,475,291 
   
   
   
10,475,291 
Escrow shares compensation
   
(435,583)
   
   
(435,583)
Stock-based compensation
   
5,074,100 
   
   
5,074,100 
Share issuance costs
(521,798)
   
   
   
(521,798)
Foreign currency translation adjustment
   
   
1,099,954 
   
1,099,954 
Net loss
   
   
   
(13,691,767)
(13,691,767)
Ending Balance, Amount at Dec. 31, 2005
45,423,077 
9,003,859 
1,280,436 
(33,299,753)
22,407,619 
Ending Balance, Shares at Dec. 31, 2005
69,638,926 
 
 
 
 
Membership paid in stock, Shares
4,167 
 
 
 
 
Membership paid in stock, Amount
8,870 
   
   
   
8,870 
Exercise of stock options, Shares
1,215,000 
 
 
 
 
Exercise of stock options, Value
1,862,345 
(753,628)
   
   
1,108,717 
Stock-based compensation
   
1,031,683 
   
   
1,031,683 
Foreign currency translation adjustment
   
   
252,317 
   
252,317 
Net loss
   
   
   
(9,655,341)
(9,655,341)
Ending Balance, Amount at Dec. 31, 2006
47,294,292 
9,281,914 
1,532,753 
(42,955,094)
15,153,865 
Ending Balance, Shares at Dec. 31, 2006
70,858,093 
 
 
 
 
Private Placements, Shares
14,428,640 
 
 
 
 
Private Placements, Amount
43,826,994 
   
   
   
43,826,994 
Exercise of stock options, Shares
728,700 
 
 
 
 
Exercise of stock options, Value
926,364 
(322,880)
   
   
603,484 
Exercise of warrants, Shares
7,542,408 
 
 
 
 
Exercise of warrants, Value
20,392,043 
   
   
   
20,392,043 
Stock-based compensation
   
1,732,839 
   
   
1,732,839 
Share issuance costs
(1,981,360)
   
   
   
(1,981,360)
Acquisition of mineral property interests, Shares
15,000 
 
 
 
 
Acquisition of mineral property interests, Amount
33,976 
   
   
   
33,976 
Foreign currency translation adjustment
   
   
3,539,535 
   
3,539,535 
Net loss
   
   
   
(11,833,416)
(11,833,416)
Ending Balance, Amount at Dec. 31, 2007
110,492,309 
10,691,873 
5,072,288 
(54,788,510)
71,467,960 
Ending Balance, Shares at Dec. 31, 2007
93,572,841 
 
 
 
 
Exercise of stock options, Shares
958,057 
 
 
 
 
Exercise of stock options, Value
1,447,926 
(591,456)
   
   
856,470 
Stock-based compensation
   
3,672,358 
   
   
3,672,358 
Share issuance costs
(7,186)
   
   
   
(7,186)
Acquisition of mineral property interests, Shares
30,000 
 
 
 
 
Acquisition of mineral property interests, Amount
60,941 
   
   
   
60,941 
Foreign currency translation adjustment
   
   
(12,483,218)
   
(12,483,218)
Net loss
   
   
   
(16,730,278)
(16,730,278)
Ending Balance, Amount at Dec. 31, 2008
111,993,990 
13,772,775 
(7,410,930)
(71,518,788)
46,837,047 
Ending Balance, Shares at Dec. 31, 2008
94,560,898 
 
 
 
 
Exercise of stock options, Shares
2,355,948 
 
 
 
 
Exercise of stock options, Value
4,330,539 
(2,050,489)
   
   
2,280,050 
Stock-based compensation
   
4,183,677 
   
   
4,183,677 
Acquisition of mineral property interests, Shares
142,500 
 
 
 
 
Acquisition of mineral property interests, Amount
275,122 
   
   
   
275,122 
Foreign currency translation adjustment
   
   
6,930,002 
   
6,930,002 
Unrealized gain on available for sale securities
   
   
563,481 
   
563,481 
Net loss
   
   
   
(17,102,254)
(17,102,254)
Ending Balance, Amount at Dec. 31, 2009
116,599,651 
15,905,963 
82,553 
(88,621,042)
43,967,125 
Ending Balance, Shares at Dec. 31, 2009
97,059,346 
 
 
 
 
Exercise of stock options, Shares
2,122,278 
 
 
 
 
Exercise of stock options, Value
4,632,135 
(1,932,407)
   
   
2,699,728 
Acquistion of PacMag, Shares
15,020,801 
 
 
 
 
Acquistion of PacMag, Amount
28,325,101 
   
   
   
28,325,101 
Stock-based compensation
   
2,897,845 
   
   
2,897,845 
Share issuance costs
(147,228)
   
   
   
(147,228)
Acquisition of mineral property interests, Shares
152,500 
 
 
 
 
Acquisition of mineral property interests, Amount
382,284 
   
   
   
382,284 
Foreign currency translation adjustment
   
   
3,483,645 
   
3,483,645 
Unrealized gain on available for sale securities
   
   
2,184,516 
   
2,184,516 
Net loss
   
   
   
(20,069,408)
(20,069,408)
Ending Balance, Amount at Dec. 31, 2010
149,791,943 
16,871,401 
5,750,714 
(108,690,450)
63,723,608 
Ending Balance, Shares at Dec. 31, 2010
114,354,925 
 
 
 
 
Marketed offering, Shares
11,482,216 
 
 
 
 
Marketed offering, Amount
14,075,483 
   
   
   
14,075,483 
Exercise of stock options, Shares
427,147 
 
 
 
(427,147)
Exercise of stock options, Value
1,050,721 
(442,255)
   
   
608,466 
Stock-based compensation
   
991,161 
   
   
991,161 
Share issuance costs
(1,065,065)
   
   
   
(1,065,065)
Acquisition of mineral property interests, Shares
752,500 
 
 
 
 
Acquisition of mineral property interests, Amount
1,721,110 
 
 
 
1,721,110 
Foreign currency translation adjustment
   
   
(1,101,366)
   
(1,101,366)
Unrealized gain on available for sale securities
   
   
(2,747,997)
   
(2,747,997)
Net loss
   
   
   
(17,140,208)
(17,140,208)
Ending Balance, Amount at Dec. 31, 2011
165,574,192 
17,420,307 
1,901,351 
(125,830,658)
59,065,192 
Ending Balance, Shares at Dec. 31, 2011
127,016,788 
 
 
 
 
Exercise of over allotment, Shares
1,320,455 
 
 
 
 
Exercise of over allotment, Amount
1,628,583 
   
   
   
1,628,583 
Exercise of stock options, Shares
 
 
 
 
   
Exercise of stock options, Value
(44,679)
44,679 
   
   
   
Stock-based compensation
 
1,207,878 
 
 
1,207,878 
Share issuance costs
(108,058)
 
 
 
(108,058)
Acquisition of mineral property interests, Shares
540,000 
 
 
 
 
Acquisition of mineral property interests, Amount
378,776 
 
 
 
378,776 
Foreign currency translation adjustment
 
 
1,351,668 
 
1,351,668 
Net loss
 
 
 
(15,196,129)
(15,196,129)
Ending Balance, Amount at Dec. 31, 2012
167,428,814 
18,672,864 
3,253,019 
(141,026,787)
48,327,910 
Ending Balance, Shares at Dec. 31, 2012
128,877,243 
 
 
 
 
Private Placements, Shares
17,857,142 
 
 
 
 
Private Placements, Amount
9,722,897 
   
   
   
9,722,897 
Exercise of stock options, Shares
 
 
 
 
   
Stock-based compensation
   
1,422,297 
   
   
1,422,297 
Share issuance costs
(86,636)
   
   
   
(86,636)
Foreign currency translation adjustment
   
   
(2,787,404)
   
(2,787,404)
Net loss
   
   
   
(11,422,025)
(11,422,025)
Ending Balance, Amount at Dec. 31, 2013
$ 177,065,075 
$ 20,095,161 
$ 465,615 
$ (152,448,812)
$ 45,177,039 
Ending Balance, Shares at Dec. 31, 2013
146,734,385 
 
 
 
 
1. NATURE AND CONTINUANCE OF OPERATIONS
Note 1. NATURE AND CONTINUANCE OF OPERATIONS

Entrée Gold Inc. was incorporated under the laws of the Province of British Columbia on July 19, 1995 and continued under the laws of the Yukon Territory on January 22, 2003. On May 27, 2005, Entrée Gold Inc. changed its governing jurisdiction from the Yukon Territory to British Columbia by continuing into British Columbia under the Business Corporations Act (British Columbia). The principal business activity of Entrée Gold Inc., together with its subsidiaries (collectively referred to as the “Company”), is the exploration of mineral property interests. To date, the Company has not generated significant revenues from its operations and is considered to be in the exploration stage.

 

All amounts are expressed in United States dollars, except for certain amounts denoted in Canadian dollars ("C$"), and Australian dollars ("A$").

 

These consolidated financial statements have been prepared on the assumption that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. The Company currently earns no operating revenues. Continued operations of the Company are dependent upon the Company’s ability to secure additional equity capital or receive other financial support, and in the longer term to generate profits from business operations. Management believes that the Company has sufficient working capital to maintain its operations for the next fiscal year.

2. SIGNIFICANT ACCOUNTING POLICIES
Note 2. SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

 

These consolidated financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP") in the United States of America and include the accounts of the Company and all of its subsidiaries. All significant intercompany transactions and balances have been eliminated upon consolidation.

 

Use of estimates

 

The preparation of consolidated financial statements in accordance with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to deferred income tax asset valuations, asset impairment, stock-based compensation, valuation of asset-backed commercial paper and loss contingencies. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgements about the other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between estimates and the actual results, future results of operations will be affected.

 

Cash and cash equivalents

 

Cash and cash equivalents includes cash in banks, money market funds, and certificates of term deposits with maturities of less than three months from inception, which are readily convertible to known amounts of cash and which, in the opinion of management, are subject to an insignificant risk of loss in value. The Company had $46,701,216 in cash at December 31, 2013.

 

Long-term investments

 

Long-term investments in companies in which the Company has voting interests of 20% to 50% or where the Company has the ability to exercise significant influence, are accounted for using the equity method. Under this method, the Company’s share of the investees’ earnings and losses is included in operations and its investments therein are adjusted by a like amount. Dividends received are credited to the long-term investment accounts.

 

Other long-term investments are classified as "available-for-sale" investments and unrealized gains and losses on these investments are recorded in accumulated other comprehensive income as a separate component of stockholders’ equity, unless the declines in market value are judged to be other than temporary, in which case the losses are recognized in income in the period. Gains and losses from the sale of these investments are included in income in the period.

 

Equipment

 

Equipment, consisting of office, computer, field equipment and buildings, is recorded at cost less accumulated depreciation. Depreciation is recorded on a declining balance basis at rates ranging from 20% to 30% per annum.

 

Mineral property interests

 

Costs of exploration and costs of carrying and retaining unproven properties are expensed as incurred. The Company considers mineral rights to be tangible assets and accordingly, the Company capitalizes certain costs related to the acquisition of mineral rights.

 

Asset retirement obligation

 

The Company records the fair value of the liability for closure and removal costs associated with the legal obligations upon retirement or removal of any tangible long-lived assets where the initial recognition of any liability will be capitalized as part of the asset cost and depreciated over its estimated useful life. To date, the Company has not incurred any asset retirement obligations.

 

Impairment of long-lived assets

 

Long-lived assets are continually reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the discounted carrying amount of the assets exceeds the fair value of the assets.

 

Stock-based compensation

 

The Company applies the fair value method of accounting for all stock option awards, whereby the Company recognizes a compensation expense for all stock options awarded to employees, officers and consultants based on the fair value of the options on the date of grant, which is determined using the Black Scholes option pricing model. The options are expensed over the vesting period of the options.

 

Financial instruments

 

The Company measures the fair value of financial assets and liabilities based on GAAP guidance which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

 

Under GAAP, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value hierarchy is also established, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

 

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Quoted prices for similar assets and liabilities in active markets or inputs that are observable.

Level 3 – Inputs that are unobservable (for example cash flow modelling inputs based on assumptions).

 

Income taxes

 

The Company follows the asset and liability method of accounting for income taxes whereby deferred income taxes are recognized for the deferred income tax consequences attributable to differences between the financial statement carrying values of existing assets and liabilities and their respective income tax bases (temporary differences). Deferred income tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is included in income in the period in which the change occurs. The amount of deferred income tax assets recognized is limited to the amount that is more likely than not to be realized.

 

Foreign currency translation

 

The functional currency of the Company is the Canadian dollar. Accordingly, monetary assets and liabilities denominated in a foreign currency are translated at the exchange rate in effect at the balance sheet date while non-monetary assets and liabilities denominated in a foreign currency are translated at historical rates. Revenue and expense items denominated in a foreign currency are translated at exchange rates prevailing when such items are recognized in the statement of operations and comprehensive loss. Exchange gains or losses arising on translation of foreign currency items are included in the statement of operations and comprehensive loss.

 

The Company follows the current rate method of translation with respect to its presentation of these consolidated financial statements in the reporting currency, which is the United States dollar. Accordingly, assets and liabilities are translated into United States dollars at the period-end exchange rates while revenue and expenses are translated at the prevailing exchange rates during the period. Related exchange gains and losses are included in a separate component of stockholders’ equity as accumulated other comprehensive income.

 

Net loss per share

 

Basic net loss per share is computed by dividing the net loss for the period attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share takes into consideration shares of common stock outstanding (computed under basic loss per share) and potentially dilutive shares of common stock. Diluted net loss per share is not presented separately from basic net loss per share as the conversion of outstanding stock options and warrants into common shares would be anti-dilutive. At December 31, 2013, the total number of potentially dilutive shares of common stock excluded from basic net loss per share was 14,400,500 (December 31, 2012 - 9,223,000; December 31, 2011 - 9,135,500).

 

Comparative figures

 

Certain comparative figures have been reclassified to conform with the current year’s presentation.

 

Recent accounting pronouncements

 

The accounting pronouncements issued by the Financial Accounting Standards Board during the year ended December 31, 2013 were not applicable to the Company.

3. CASH AND CASH EQUIVALENTS
Note 3. CASH AND CASH EQUIVALENTS

 

Cash and cash equivalents consist of cash at bank and in hand of $46,701,216 as at December 31, 2013 (December 31, 2012 - $4,255,508).

4. LONG-TERM INVESTMENTS
Note 4. LONG-TERM INVESTMENTS

Equity Method Investment

 

The Company accounts for its interest in a joint venture with Oyu Tolgoi LLC (“OTLLC”), a company owned 66% by Turquoise Hill Resources Ltd. (formerly Ivanhoe Mines Ltd.) (“Turquoise Hill”) and 34% by the Government of Mongolia (Note 7), as a 20% equity investment. The Company’s share of the loss of the joint venture is $146,051 for the year ended December 31, 2013 (December 31, 2012 - $1,012,156; December 31, 2011 - $2,397,085) plus accrued interest expense of $260,453 for the year ended December 31, 2013 (December 31, 2012 - $229,359; December 31, 2011 - $151,952).

5. EQUIPMENT
Note 5. EQUIPMENT
  December 31, 2013   December 31, 2012  
          Accumulated     Net Book           Accumulated     Net Book  
    Cost     Depreciation     Value     Cost     Depreciation     Value  
                                     
Office equipment   $ 92,057     $ 64,123     $ 27,934     $ 122,931     $ 90,900     $ 32,031  
Computer equipment     459,426       349,636       109,790       523,893       353,944       169,949  
Field equipment     251,604       144,786       106,818       540,422       274,694       265,728  
Buildings     246,540       202,139       44,401       280,936       209,077       71,859  
    $ 1,049,627     $ 760,684     $ 288,943     $ 1,468,182     $ 928,615     $ 539,567  
6. MINERAL PROPERTY INTERESTS
Note 6. MINERAL PROPERTY INTERESTS

 

Title to mineral property interests involves certain inherent risks due to the difficulties of determining the validity of certain claims as well as the potential for problems arising from the frequently ambiguous conveyancing history characteristic of many mineral property interests. The Company has investigated title to its mineral property interests and, except as otherwise disclosed below, to the best of its knowledge, title to the mineral property interests is in good standing.

 

Material Properties

 

The Company’s two principal assets are its interest in the Lookout Hill property in Mongolia, and the Ann Mason project (the “Ann Mason Project”) in Nevada.

 

Lookout Hill, Mongolia

 

The Lookout Hill property in the South Gobi region of Mongolia is comprised of two mining licences, Shivee Tolgoi and Javhlant, granted by the Mineral Resources Authority of Mongolia ("MRAM") in October 2009. Title to the two licences is held by the Company.

 

In October 2004, the Company entered into an arm’s-length Equity Participation and Earn-In Agreement (the "Earn-In Agreement") with Turquoise Hill. Under the Earn-In Agreement, Turquoise Hill agreed to purchase equity securities of the Company, and was granted the right to earn an interest in what is now the eastern portion of the Shivee Tolgoi mining licence and all of the Javhlant mining licence (together the "Joint Venture Property"). Most of Turquoise Hill’s rights and obligations under the Earn-In Agreement were subsequently assigned by Turquoise Hill to what was then its wholly-owned subsidiary, OTLLC. The Government of Mongolia subsequently acquired a 34% interest in OTLLC from Turquoise Hill.

 

On June 30, 2008, OTLLC gave notice that it had completed its earn-in obligations by expending a total of $35 million on exploration of the Joint Venture Property. OTLLC earned an 80% interest in all minerals extracted below a sub-surface depth of 560 metres from the Joint Venture Property and a 70% interest in all minerals extracted from surface to a depth of 560 metres from the Joint Venture Property. In accordance with the Earn-In Agreement, the Company and OTLLC formed a joint venture (the "Entrée-OTLLC Joint Venture") on terms annexed to the Earn-In Agreement.

 

The portion of the Shivee Tolgoi mining licence outside of the Joint Venture Property ("Shivee West") is 100% owned by the Company, but is subject to a right of first refusal by OTLLC.

 

The conversion of the original Shivee Tolgoi and Javhlant exploration licences into mining licences was a condition precedent to the Investment Agreement (the "Investment Agreement") between Turquoise Hill, OTLLC, the Government of Mongolia and Rio Tinto International Holdings Limited.  The licences are part of the contract area covered by the Investment Agreement, although the Company is not a party to the Investment Agreement.  The Shivee Tolgoi and Javhlant mining licences were each issued for a 30 year term and have rights of renewal for two further 20 year terms.

 

On February 27, 2013, notice (the "Notice") was delivered to the Company that the Ministry of Mining had cancelled the July 2009 Order (the "2009 Order") registering the reserves on the Joint Venture Property. The Notice stated that the 2009 Order breached sections of the Minerals Law of Mongolia and Charter of the Minerals Resource Counsel that give the head of MRAM the authority to register reserves, rather than the Minister of Mineral Resources and Energy. The Notice further advised that the Company is temporarily restricted from transferring, selling or leasing the Shivee Tolgoi and Javhlant mining licences. On September 4, 2013, the Minister of Mining issued Order No. 179, advising the Minerals Professional Council to re-submit its previous conclusions regarding the reserves to MRAM for review and registration. On September 6, 2013, the head of MRAM ordered that the reserves on the Joint Venture Property be registered. The Company was also subsequently advised that the temporary transfer restriction on the joint venture mining licences will be lifted.

 

As of December 31, 2013, the Entrée-OTLLC Joint Venture had expended approximately $26.3 million to advance the Joint Venture Property. Under the terms of the Entrée-OTLLC Joint Venture, OTLLC contributed on behalf of the Company its required participation amount charging interest at prime plus 2% (Note 7).

  

Ann Mason, Nevada, United States

 

The Ann Mason Project is defined by a series of both unpatented lode claims on public land administered by the Bureau of Land Management, and title to patented lode claims. The project area includes the Ann Mason and the Blue Hill deposits, and several early-stage copper porphyry targets including the Blackjack IP, Blackjack Oxide, Roulette and Minnesota targets. 

 

Certain of the unpatented lode claims are leased to the Company pursuant to a mining lease and option to purchase agreement ("MLOPA") with two individuals. Under the MLOPA, the Company is granted the option to purchase the claims for $500,000. If the Company exercises its option, the claims will be subject to a 3% net smelter returns ("NSR") royalty (which may be bought down to a 1% NSR royalty for $2 million). The MLOPA also provides for annual advance minimum royalty payments of $27,500 which commenced in June 2011 and will continue until the commencement of sustained commercial production. The advance payments will be credited against future royalty payments or the buy down of the royalty.

 

In September 2009, the Company entered into an agreement whereby the Company may acquire an 80% interest in certain unpatented lode claims formerly known as the Roulette property. In order to acquire its interest, the Company must: (a) incur expenditures of $1,000,000, make cash payments of $140,000 and issue 85,000 common shares of the Company within three years (completed); (b) make aggregate advance royalty payments totalling $375,000 between the fifth and tenth anniversaries of the agreement; and (c) deliver a bankable feasibility study before the tenth anniversary of the agreement.

 

During the year ended December 31, 2012, the Company, through a combination of staking and purchase agreements, acquired certain patented and unpatented lode claims within or contiguous to the boundaries of its Ann Mason Project pursuant to which the Company paid $3,721,170 and issued 40,000 common shares valued at $52,293.

 

In February 2013, the Company entered into an agreement with Sandstorm Gold Ltd. ("Sandstorm") whereby the Company granted Sandstorm a 0.4% NSR royalty over certain of the unpatented lode claims, including the claims covering the Ann Mason and Blue Hill deposits, in return for an upfront payment of $5 million (the "Sandstorm NSR Payment") which was recorded as a recovery to acquisition costs. In addition, certain of the patented lode claims are subject to a 2% NSR royalty.

  

Other Properties

 

During the year ended December 31, 2013, the Company also had interests in non-material properties in Australia, United States, and Peru. Non-material properties include the following:

 

Australia Properties

 

The Company holds a 53.7% interest in the Blue Rose copper-iron-gold-molybdenum joint venture property, with Giralia Resources Pty Ltd., now a subsidiary of Atlas Iron Limited (ASX:AGO - "Atlas"), retaining the remaining 46.3% interest.

 

Lordsburg and Oak Grove

 

During the year ended December 31, 2012, the Company entered into an agreement to purchase a 100% interest in the Lordsburg and Oak Grove properties, New Mexico, subject to a 2% NSR royalty.  Pursuant to the agreement, the Company paid $100,000 and issued 500,000 common shares valued at $326,483.  During the year ended December 31, 2013, the Company abandoned the unpatented lode claims comprising the Oak Grove property and recorded an impairment of mineral property interests of $437,732.

 

Capitalized mineral property acquisition costs are summarized as follows:

 

   

December 31,

2013

   

December 31,

2012

 
             
USA            
Ann Mason   $ 47,495,218     $ 55,752,523  
Lordsburg     494,171       990,797  
Other     282,738       302,262  
Total USA     48,272,127       57,045,582  
                 
AUSTRALIA                
Blue Rose JV     534,438       571,342  
Total Australia     534,438       571,342  
                 
Total all locations   $ 48,806,565     $ 57,616,924  

 

Ann Mason capitalized mineral property acquisition costs are net of the $5 million Sandstorm NSR Payment.

  

Expensed exploration costs are summarized as follows:

 

   

Year Ended

December 31,

2013

   

Year Ended

December 31,

2012

   

Year Ended

December 31,

2011

 
                   
US   $ 3,940,264     $ 5,857,999     $ 14,088,428  
Mongolia     1,355,493       1,964,883       3,255,588  
Other     807,235       411,472       335,158  
                         
Total all locations   $ 6,102,992     $ 8,234,354     $ 17,679,174  

7. LOANS PAYABLE
Note 7. LOANS PAYABLE

Under the terms of the Entrée-OTLLC Joint Venture (Note 6), OTLLC will contribute funds to approved joint venture programs and budgets on the Company’s behalf. Interest on each loan advance shall accrue at an annual rate equal to OTLLC’s actual cost of capital or the prime rate of the Royal Bank of Canada, plus two percent (2%) per annum, whichever is less, as at the date of the advance. The loans will be repayable by the Company monthly from ninety percent (90%) of the Company’s share of available cash flow from the Entrée-OTLLC Joint Venture. In the absence of available cash flow, the loans will not be repayable. The loans are not expected to be repaid within one year.

8. SANDSTORM FINANCING ARRANGEMENT
8. SANDSTORM FINANCING ARRANGEMENT

In February 2013, the Company entered into an equity participation and funding agreement with Sandstorm that provided an upfront deposit (the "Deposit") from Sandstorm of $40 million. The Company will use future payments that it receives from its mineral property interests to purchase and deliver metal credits to Sandstorm, in amounts that are indexed to the Company’s share of gold, silver and copper production from the Joint Venture Property as follows:

 

·   25.7% of the Company’s share of gold and silver, and 2.5% of the Company’s share of copper, produced from the portion of the Shivee Tolgoi mining licence included in the Joint Venture Property; and

 

·   33.8% of the Company’s share of gold and silver, and 2.5% of the Company’s share of copper, produced from the Javhlant mining licence.

 

In addition to the Deposit, upon delivery of the metal credits Sandstorm will make a cash payment to the Company equal to the lesser of the prevailing market price and $220 per ounce of gold, $5 per ounce of silver and $0.50 per pound of copper (subject to inflation adjustments).  After approximately 8.6 million ounces of gold, 40.3 million ounces of silver and 9.1 billion pounds of copper have been produced from the entire Joint Venture Property, the cash payment will increase to the lesser of the prevailing market price and $500 per ounce of gold, $10 per ounce of silver and $1.10 per pound of copper (subject to inflation adjustments). To the extent that the prevailing market price is greater than the amount of the cash payment, the difference between the two will be credited against the Deposit (the net amount of the Deposit being the "Unearned Balance").

 

In the event of a partial expropriation of the Company’s interest in the Joint Venture Property, which is not reversed during the abeyance period provided for in the equity participation and funding agreement, the Company will be required to return a pro rata portion of the Deposit (the amount of the repayment not to exceed the amount of the Unearned Balance) and the metal credits that the Company is required to deliver will be reduced proportionately. In the event of a full expropriation, the full amount of the Unearned Balance must be returned with interest.

 

The Company is not required to deliver actual metal, and the Company may use revenue from any of its assets to purchase the requisite amount of metal credits.

 

The Company recorded the Deposit as deferred revenue and will recognize amounts in revenue as metal credits are delivered to Sandstorm, which is expected to commence in 2019.

 

In addition, the Company entered into an agreement with Sandstorm whereby the Company granted Sandstorm a 0.4% NSR royalty over certain of the Ann Mason Project claims, including the claims covering the Ann Mason and Blue Hill deposits, in return for the Sandstorm NSR Payment of $5 million which was recorded as a recovery to acquisition costs.

 

The Company also completed a private placement with Sandstorm for gross proceeds of $9,722,897.

 

The transactions costs related to the Sandstorm financing arrangement incurred in 2013 were $936,926 for consultancy and advisory fees, $192,203 for legal fees included in general and administration expenses and $86,636 for share issuance costs.

9. COMMON STOCK
Note 9. COMMON STOCK

Share issuances

 

In July 1995, the Company completed a private placement consisting of 4,200,000 common shares issued at a price of C$0.02 per share for gross proceeds of $60,852.

 

In July 1995, the Company issued 3,200,000 shares at a value of $147,520 for the acquisition of a mineral property interest in Costa Rica. This mineral property was abandoned in 2001.

 

In January 1997, the Company completed a private placement consisting of 1,680,000 common shares issued at a price of C$0.06 per share for gross proceeds of $77,553.

 

In April 1997, the Company completed a private placement consisting of 2,200,000 common shares issued at a price of C$0.12 per share for gross proceeds of $197,165.

 

In February 2000, the Company issued 1,128,000 common shares for cash proceeds of $113,922 on the exercise of stock options.

 

In September 2002, the Company completed a brokered private placement consisting of 4,000,000 units issued at a price of C$0.20 per unit for gross proceeds of $505,520. Each unit consisted of one common share and one-half non-transferable share purchase warrant. Each whole share purchase warrant entitled the holder to acquire one additional common share at a price of C$0.40 per share for a period of one year. As part of this private placement, the Company issued 310,000 units as a finder's fee to the agent. Related share issue costs of $112,338 were comprised of cash costs totalling $72,556 and the fair value of 310,000 units estimated at $39,782, of which $39,178 was assigned to the common shares.

 

In January 2003, the Company completed a combination brokered and non-brokered private placement consisting of 2,500,000 units issued at a price of C$0.35 per unit for gross proceeds of $569,975. Each unit consisted of one common share and one-half non-transferable share purchase warrant. As part of this private placement, the Company issued 329,723 agent's warrants. Each whole share purchase warrant entitled the holder to acquire one additional common share at a price of C$0.40 per share for a period of one year. Related share issue costs of $94,461 were comprised of cash costs totalling $78,188 and the fair value of the agents warrants estimated at $16,273.

 

In January 2003, the Company issued 100,000 common shares at a value of $35,827 as a finder's fee towards the acquisition of mineral property interests.

 

In February 2003, the Company issued 12,500 common shares for proceeds of $3,288 on the exercise of warrants.

 

In March 2003, the Company issued 135,416 common shares at a value of $45,839 and 67,708 non-transferable share purchase warrants with a value of $5,252 to settle accounts payable totalling $45,839. Each share purchase warrant entitled the holder to acquire one additional common share at a price of C$0.60 per share for a period of one year.

 

In April 2003, the Company completed a non-brokered private placement consisting of 1,000,000 units issued at a price of C$0.40 per unit for proceeds of $275,560. Each unit consisted of one common share and one non-transferable share purchase warrant. Each share purchase warrant entitled the holder to acquire one additional common share at a price of C$0.50 per share for the first year and at C$0.60 per share for the second year. The Company incurred costs of $4,408 with respect to this private placement.

 

In August 2003, the Company completed a non-brokered private placement consisting of 2,000,000 common shares issued at a price of C$0.20 per share for gross proceeds of $288,360. Related share issue costs were $15,270.

 

In October 2003, the Company completed a short-form offering and issued 2,352,942 units at a price of C$0.85 per unit for gross proceeds of $1,510,400. Each unit consisted of one common share and one-half of one non-transferable share purchase warrant. Each whole share purchase warrant allowed the holder to purchase one additional common share at an exercise price of C$1.06 on or before October 22, 2005. The agent for the offering was paid a cash commission of 8.5% of the gross proceeds received, or $128,384, in respect of units sold and received agent's warrants to acquire common shares equal to 10% of the number of units sold, or 235,294 warrants. The agent's warrants allowed the agent to purchase one additional common share at an exercise price of C$0.95 per share on or before October 22, 2004. The agent was also issued 100,000 units as a corporate finance fee. Each agent's unit consisted of one common share and one-half of one non-transferable share purchase warrant. Each whole share purchase warrant allowed the agent to purchase one additional common share at an exercise price of C$0.95 on or before October 22, 2004. Related share issue costs of $296,296 were comprised of cash costs totalling $164,004 and the fair value of 100,000 agents units estimated at $72,576 and the fair value of 235,294 agent's warrants estimated at $59,716. The fair value of the agent's units of $72,576 consisted of $64,192 assigned to the common shares and $8,384 assigned to the warrants.

 

In October 2003, the Company completed a brokered private placement consisting of 12,000,000 units at a price of C$1.00 per unit for gross proceeds of $9,092,400. Each unit consisted of one common share and one-half of one non-transferable share purchase warrant. Each whole share purchase warrant allowed the holder to purchase one additional common share at an exercise price of C$1.35 on or before October 31, 2005. The agent for the offering was paid a cash commission of $566,381, and received 920,000 agent'swarrants. The agent's warrants allowed the agent to purchase one additional common share at an exercise price of C$1.35 per share on or before April 30, 2005. Related share issue costs of $991,149 were comprised of cash costs totalling $680,124 and the fair value of the agents warrants estimated at $311,025.

 

In November 2003, the Company issued 5,000,000 shares at a value of $3,806,000 pursuant to the Lookout Hill mineral property purchase agreement.

 

During the eight month period ended December 31, 2003 the Company issued 3,730,372 common shares for cash proceeds of $1,310,221 on the exercise of warrants. The warrants exercised had a fair value of $6,443 when issued.

 

During the eight month period ended December 31, 2003, the Company issued 35,000 common shares for cash proceeds of $14,704 on the exercise of stock options. The options exercised had a fair value of $4,026 when granted.

 

In January 2004, the Company issued 50,000 common shares for cash proceeds of $17,942 on the exercise of stock options. The options exercised had a fair value of $8,238 when granted.

 

In November 2004, the Company completed a non-brokered private placement consisting of 4,600,000 units at a price of C$1.00 per unit for gross proceeds of $3,846,521. Each unit consisted of one common share and one non-transferable share purchase warrant. Each share purchase warrant entitled the holder to purchase one additional common share at a price of C$1.10 on or before November 9, 2006. Related share issue costs were comprised of cash costs totalling $21,026.

 

During the year ended December 31, 2004, the Company issued 533,836 common shares for cash proceeds of $173,011 on the exercise of warrants. The warrants exercised had a fair value of $13,197 when issued.

 

In June 2005, the Company completed a non-brokered private placement consisting of 5,665,730 units at a price of C$2.20 per unit for gross proceeds of $10,170,207. Each unit consisted of one common share, one non-transferable share purchase A warrant and one non-transferable share purchase B warrant. Two A warrants entitled the holder to purchase one common share of the Company at a price of C$2.75 for a period of 2 years. Two B warrants entitled the holder to purchase one common share of the Company at a price of C$3.00 for a period of two years. Pursuant to an agreement with the Company, the placee, Kennecott Canada Exploration Inc. (now Rio Tinto Exploration Canada Inc. (“Rio Tinto”)) (indirect wholly-owned subsidiary of Rio Tinto plc) had the right to acquire additional securities and participate in future financings by the Company so as to maintain its proportional equity in the Company. This right was subsequently assigned to Rio Tinto International Holdings Limited, and terminated on March 1, 2013.  Related share issue costs were $521,798.

 

In July 2005, the Company completed a non-brokered private placement consisting of 1,876,680 units at a price of C$2.20 per unit for gross proceeds of $3,367,890. Each unit consisted of one common share, one non-transferable share purchase A warrant and one non-transferable share purchase B warrant. Two A warrants entitled the holder to purchase one common share of the Company at a price of C$2.75 for a period of 2 years. Two B warrants entitled the holder to purchase one common share of the Company at a price of C$3.00 for a period of two years.

 

During the year ended December 31, 2005, the Company issued 10,456,450 common shares for cash proceeds of $10,475,291 on the exercise of warrants.

 

During the year ended December 31, 2005, the Company issued 772,000 common shares for cash proceeds of $705,673 on the exercise of stock options. The fair value recorded when the options were granted was $532,908.

 

During the year ended December 31, 2006, the Company issued 1,215,000 common shares for cash proceeds of $1,108,717 on the exercise of stock options. The fair value recorded when the options were granted was $753,628.

 

In June 2006, the Company issued 4,167 common shares to the University of British Columbia as a donation to become a member of the Mineral Deposit Research Unit. The fair value recorded when the shares were issued of $8,870 was recorded as a donation expense.

 

In June 2007, the Company issued 7,542,408 common shares for cash proceeds of $20,392,043 on the exercise of warrants.

 

In August 2007, the Company issued 15,000 shares at a value of $33,976 to Empirical Discovery, LLC (“Empirical”) pursuant to a mineral property option agreement.

 

In November 2007, the Company completed an underwriten short form prospectus offering of 10,000,000 common shares at price of C$3.00 per share for gross proceeds of C$30,000,000. Turquoise Hill and Rio Tinto elected to exercise their respective rights to maintain their percentage ownership interests.  Turqoise Hill acquired 2,128,356 shares at C$3.00 for gross proceeds of C$6,464,881. Rio Tinto acquired 2,300,284 shares at C$3.00 for proceeds of C$6,987,113. Related share issuance costs were $1,981,360.

 

During the year ended December 31, 2007, the Company issued 728,700 common shares for cash proceeds of $603,684 on the exercise of stock options. The fair value recorded when the options were granted was $322,880.

 

In February 2008, the Company issued 10,000 shares at a fair value of $20,066 pursuant to a mineral property option agreement.

 

In August 2008, the Company issued 20,000 shares at a fair value of $40,875 pursuant to a mineral property option agreement.

 

During the year ended December 31, 2008, the Company issued 958,057 common shares for cash proceeds of $856,470 on the exercise of stock options. The fair value recorded when the options were granted of $591,456 has been transferred from additional paid–in capital to common stock on the exercise of the options. Included in the issued shares were 144,169 common shares issued pursuant to the cashless exercise of 296,112 options with an exercise price of C$1.00, with the remaining 151,943 options treated as cancelled.

 

In February 2009, the Company issued 20,000 shares at a fair value of $22,515 pursuant to a mineral property option agreement.

 

In August 2009, the Company issued 72,500 shares at a fair value of $130,056 pursuant to mineral property option agreements.

 

In November 2009, the Company issued 50,000 shares at a fair value of $122,551 pursuant to a mineral property option agreement.

 

During the year ended December 31, 2009, the Company issued 2,355,948 common shares for cash proceeds of $2,280,050 on the exercise of stock options. The fair value recorded when the options were granted was $2,050,489. Included in the issued shares were 415,448 common shares issued pursuant to the cashless exercise of 705,000 options with an exercise price of C$1.15, with the remaining 289,552 options treated as cancelled.

 

In February 2010, the Company issued 30,000 shares at a fair value of $82,391 pursuant to a mineral property option agreement.

 

In June 2010, the Company issued 15,020,801 shares at a fair value of $28,325,101 pursuant to the acquisition of PacMag and incurred $147,228 of share issue costs.

 

In August 2010, the Company issued 80,000 shares at a fair value of $185,863 pursuant to a mineral property option agreement covering the Lordsburg and Oak Grove properties in New Mexico.

 

In October 2010, the Company issued 20,000 shares at a fair value of $53,797 pursuant to a finder’s fee agreement in connection with a mineral property option agreement.

 

In October 2010, the Company issued 22,500 shares at a fair value of $60,233 pursuant to a mineral property option agreement.

 

During the year ended December 31, 2010, the Company issued 2,122,278 common shares for cash proceeds of $2,699,728 on the exercise of stock options. The fair value recorded when the options were granted was $1,932,407. Included in the issued shares were 430,078 common shares issued pursuant to the cashless exercise of 100,000 options with an exercise price of C$1.32, 1,535,300 options with an exercise price of C$1.75, and 7,500 options with an exercise price of C$2.60, with the remaining 1,212,722 options treated as cancelled.

 

In February 2011, the Company issued 40,000 shares at a fair value of $122,189 pursuant to a mineral property option agreement.

 

In July 2011, the Company issued 550,000 shares at a fair value of $1,271,371 to acquire Honey Badger Exploration Inc.’s remaining 49% interest in what was then known as the Blackjack property.

 

In August 2011, the Company issued 150,000 shares at a fair value of $304,793 pursuant to a mineral property option agreement.

 

In October 2011, the Company issued 12,500 shares at a fair value of $19,753 pursuant to a mineral property option agreement.

 

In November 2011, the Company completed a marketed offering and issued 10,000,000 shares at a price of C$1.25 per share. Rio Tinto elected to exercise its pre-emptive rights and purchased an additional 1,482,216 shares at a price of C$1.25 per share. The total gross proceeds from the offering were $14,075,483. Related share issuance costs were $1,065,065.

 

During the year ended December 31, 2011, the Company issued 427,147 common shares for cash proceeds of $608,466 on the exercise of stock options. The fair value recorded when the options were granted was $442,255. Included in the issued shares were 87,847 common shares issued pursuant to the cashless exercise of 245,000 options with an exercise price of C$1.32, with the remaining 157,153 options treated as cancelled.

 

In January 2012, the underwriters for the Company’s November 2011 marketed offering exercised their over allotment option pursuant to which the Company issued 1,150,000 common shares at a price of C$1.25 per share. Rio Tinto elected to exercise its pre-emptive rights and purchased an additional 170,455 shares at a price of C$1.25 per share. The total gross proceeds from the over allotment were $1,628,583. Related share issuance costs were $108,058.

 

In January 2012, the Company issued 40,000 shares at a fair value of $52,293 to acquire certain claims within or contiguous to the boundaries of its Ann Mason Project.

 

In June 2012, the Company issued 500,000 shares at a fair value of $326,483 to purchase a 100% interest in the Lordsburg and Oak Grove properties.

 

In March 2013, the Company completed a private placement with Sandstorm consisting of 17,857,142 common shares issued at a price of C$0.56 per share for gross proceeds of $9,722,897.  Related share issuance costs were $86,636.

 

Stock options

 

The Company has adopted a stock option plan (the "Plan") to grant options to directors, officers, employees and consultants. Under the Plan, the Company may grant options to acquire up to 10% of the issued and outstanding shares of the Company. Options granted can have a term of up to ten years and an exercise price typically not less than the Company's closing stock price on the last trading day before the date of grant. Vesting is determined at the discretion of the Board of Directors.

 

The Company uses the Black-Scholes option pricing model to determine the fair value of stock options granted. For employees, the compensation expense is amortized on a straight-line basis over the requisite service period which approximates the vesting period. Compensation expense for stock options granted to non-employees is recognized over the contract services period or, if none exists, from the date of grant until the options vest. Compensation associated with unvested options granted to non-employees is re-measured on each balance sheet date using the Black-Scholes option pricing model.

 

The Company uses historical data to estimate option exercise, forfeiture and employee termination within the valuation model. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected term of the stock options. The Company has not paid and does not anticipate paying dividends on its common stock; therefore, the expected dividend yield is assumed to be zero. Companies are required to utilize an estimated forfeiture rate when calculating the expense for the reporting period. Based on the best estimate, management applied the estimated forfeiture rate of Nil in determining the expense recorded in the accompanying Statements of Operations and Comprehensive Loss.

 

Stock option transactions are summarized as follows:

 


 

      Number of Options Weighted Average Exercise Price (C$)
Balance at December 31, 2010                   9,292,800                                2.09
   Granted                        575,000                                2.77
   Exercised   (427,147)                                1.66
   Cancelled   (157,153)                                1.32
   Forfeited   (148,000)                                2.31
Balance at December 31, 2011                   9,135,500                                2.16
   Granted                     1,882,000                                1.22
   Expired   (1,177,500)                                2.14
   Forfeited   (617,000)                                2.05
Balance at December 31, 2012                   9,223,000                                1.98
   Granted                     7,560,000                                0.47
   Expired   (2,379,500)                                1.80
   Forfeited   (3,000)                                1.25
Balance at December 31, 2013                 14,400,500                                1.22

 

There were 7,560,000 stock options granted during the year ended December 31, 2013 with a weighted average exercise price of C$0.47 and a weighted average fair value of C$0.19. The number of stock options exercisable at December 31, 2013 was 14,400,500.

 

At December 31, 2013, the following stock options were outstanding:

 

Number of Options

Exercise

Price

(C$)

Aggregate Intrinsic Value (C$) Expiry Date Number of Options Exercisable Aggregate Intrinsic Value (C$)
             
               50,000         1.27                        -   January 18, 2014                 50,000                        -
          1,289,000         1.32                        -   February 12, 2014            1,289,000                        -
          1,472,500         2.60                        -   December 29, 2014            1,472,500                        -
             300,000         2.34                        -   September 22, 2015               300,000                        -
          1,372,500         2.86                        -   November 22, 2015            1,372,500                        -
             200,000         3.47                        -   January 4, 2016               200,000                        -
             125,000         2.94                        -   March 8, 2016               125,000                        -
             150,000         2.05                        -   July 7, 2016               150,000                        -
             100,000         2.23                        -   July 15, 2016               100,000                        -
          1,681,500         1.25                        -   January 6, 2017            1,681,500                        -
             100,000         0.73                        -   June 18, 2017               100,000                        -
          4,985,000         0.56                        -   March 15, 2018            4,985,000                        -
               50,000         0.32                        -   April 9, 2018                 50,000                        -
             150,000         0.34                        -   June 27, 2018               150,000                        -
          2,375,000         0.30                23,750   December 19, 2018            2,375,000                 23,750
        14,400,500    $            23,750              14,400,500  $             23,750

 

The aggregate intrinsic value in the preceding table represents the total intrinsic value, based on the Company’s closing stock price of C$0.31 per share as of December 31, 2013, which would have been received by the option holders had all option holders exercised their options as of that date. The total number of in-the-money options vested and exercisable as of December 31, 2013 was 2,375,000. The total intrinsic value of options exercised during the year ended December 31, 2013 was $Nil (December 31, 2012 - $Nil; December 31, 2011 - $437,770).

 

Stock-based compensation

 

7,560,000 stock options were granted during the year ended December 31, 2013. The fair value of stock options granted during the year ended December 31, 2013 was $1,421,371 (December 31, 2012 - $1,124,930; December 31, 2011 - $944,319). Stock-based compensation recognized during the year ended December 31, 2013 was $1,422,297 (December 31, 2012 - $1,207,878; December 31, 2011 - $991,161) which has been recorded in the consolidated statements of operations as follows with corresponding additional paid-in capital recorded in stockholders' equity:

 

    Year Ended December 31, 2013     Year Ended December 31, 2012     Year Ended December 31, 2011     Cumulative to December 31, 2013  
Exploration   $ 294,676     $ 267,452     $ 146,343     $ 4,369,529  
General and administration     1,127,621       940,426       844,818       19,806,528  
    $ 1,422,297     $ 1,207,878     $ 991,161     $ 24,176,057  

 

The following weighted-average assumptions were used for the Black-Scholes valuation of stock options granted:

 

                   
    December 31, 2013     December 31, 2012     December 31, 2011  
                   
Risk-free interest rate     1.30 %     1.13 %     2.06 %
Expected life of options (years)     4.3       4.9       4.2  
Annualized volatility     75 %     73 %     74 %
Dividend rate     0.00 %     0.00 %     0.00 %
10. SEGMENT INFORMATION
Note 10. SEGMENT INFORMATION

The Company operates in one business segment being the exploration of mineral property interests.

 

Geographic information is as follows:

 

    December 31, 2013     December 31, 2012  
             
Identifiable assets            
   USA   $ 49,405,542     $ 58,094,222  
   Canada     45,822,245       3,953,053  
   Australia     1,642,736       1,487,117  
   Mongolia     504,408       613,723  
   Other     20,174       25,415  
    $ 97,395,105     $ 64,173,530  
11. INCOME TAXES
11. INCOME TAXES

A reconciliation of income taxes at statutory rates with the reported taxes is as follows:

 

                   
    Year Ended December 31, 2013     Year Ended December 31, 2012     Year Ended December 31, 2011  
                   
Loss for the year   $ (13,484,781 )   $ (14,866,359 )   $ (21,969,902 )
Statutory rate     25.75 %     25.00 %     26.50 %
Expected income tax recovery     (3,472,331 )     (3,716,590 )     (5,822,024 )
Permanent differences and other     (78,811 )     270,521       (22,083 )
Difference in foreign tax rates and enacted tax rates     (366,039 )     (577,544 )     (1,152,540 )
Change in valuation allowance     1,611,239       4,353,383       2,014,763  
Withholding taxes     243,186       -       152,190  
Total income tax expense (recovery)   $ (2,062,756 )   $ 329,770     $ (4,829,694 )
                         
Current income tax expense     319,112       -       152,190  
Deferred income tax expense (recovery)     (2,381,868 )     329,770       (4,981,884 )
Total income taxes   $ (2,062,756 )   $ 329,770     $ (4,829,694 )

 

The significant components of the Company’s deferred income tax assets and liabilities are as follows:

 

             
    Year Ended December 31, 2013     Year Ended December 31, 2012  
             
Deferred income tax assets:            
Non-capital loss carry forward   $ 20,423,498     $ 18,940,044  
Resource expenditures     9,278,934       9,116,317  
Equipment     144,776       127,684  
Share issue and legal costs     149,596       248,806  
Other     349,379       317,704  
      30,346,183       28,750,555  
Valuation allowance     (23,973,665 )     (22,362,426 )
Net deferred income tax assets   $ 6,372,518     $ 6,388,129  
                 
Deferred income tax liabilities:                
Mineral property interests   $ (13,713,034 )   $ (16,110,513 )
Net deferred income tax liabilities   $ (13,713,034 )   $ (16,110,513 )
                 
Net deferred income tax liabilities   $ (7,340,516 )   $ (9,722,384 )

 

The Company has available for deduction against future taxable income non-capital losses of approximately $34,720,000 (2012: $30,380,000) in Canada, $710,000 (2012: $690,000) in China, $7,770,000 (2012: $8,860,000) in Mongolia, $26,270,000 (2012: $25,470,000) in the United States of America, $580,000 (2012: $580,000) in Australia and $580,000 (2012: $300,000) in Peru. These losses, if not utilized, will expire through 2033. Subject to certain restrictions, the Company also has foreign resource expenditures available to reduce taxable income in future years. The Company has recognized $6,372,518 of deferred tax benefits arising as a result of these losses, resource expenditures, equipment,  share issue and legal costs in these financial statements.

 

The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. As of December 31, 2013, there was no accrued interest or accrued penalties.

 

The Company files income tax returns in Canada and several foreign jurisdictions. The Company’s Canadian income tax returns from 2007 to 2013 are open. For other foreign jurisdictions, including Mongolia and the U.S., all years remain open. 

12. FINANCIAL INSTRUMENTS
Note 12. FINANCIAL INSTRUMENTS

The Company's financial instruments generally consist of cash and cash equivalents, receivables, deposits, accounts payable and accrued liabilities and loans payable. Unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments. The fair value of these financial instruments approximates their carrying values, except as noted below.

 

The Company is exposed to currency risk by incurring certain expenditures in currencies other than the Canadian dollar. The Company does not use derivative instruments to reduce this currency risk.

 

Fair value measurement is based on a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value which are:

 

Level 1 — Quoted prices that are available in active markets for identical assets or liabilities.

 

Level 2 — Quoted prices in active markets for similar assets that are observable.

 

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

At December 31, 2013, the Company had Level 1 financial instruments, consisting of cash and cash equivalents, with a fair value of $46,701,216.

13. ACCUMULATED OTHER COMPREHENSIVE INCOME (OCI)
Note 13. ACCUMULATED OTHER COMPREHENSIVE INCOME (OCI)

 

   

Year Ended

December 31,

2013

   

Year Ended

December 31,

2012

     

Year Ended

December 31,

2011

 
                     
Accumulated OCI, beginning of period:                    
Currency translation adjustment   $ 3,253,019     $ 1,901,351     $ 3,002,717  
Available for sale of securities     -       -       2,747,997  
    $ 3,253,019     $ 1,901,351     $ 5,750,714  
                         
Other comprehensive income (loss) for the period:                        
Currency translation adjustments   $ (2,787,404 )   $ 1,351,668     $ $ (1,101,366 )
Unrealized gain on available for sale investments     -       -       715,428  
Release of OCI on available for sale investments     -       -       (3,463,425 )
    $ (2,787,404 )   $ 1,351,668     $ (3,849,363 )
                         
Accumulated OCI, end of period:                        
Currency translation adjustment   $ 465,615     $ 3,253,019     $ 1,901,351  
    $ 465,615     $ 3,253,019     $ 1,901,351  

14. SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS
Note 14. SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS

There were no significant non-cash transactions for the year ended December 31, 2013. The significant non-cash transaction for the years ended December 31, 2012 and December 31, 2011 consisted of the following items:

 

·   issuance of 540,000 common shares (December 31, 2011 - 752,500) in payment of mineral property acquisitions valued at $378,776 (December 31, 2011 - $1,721,110) which have been capitalized as mineral property interests.

 

·   funding by OTLLC of the Company’s investment requirements for the Entrée-OTLLC Joint Venture of $1,012,156 (December 31, 2011 - $2,397,085).
15. COMMITMENTS
Note 15. COMMITMENTS

The Company is committed to make lease payments for the rental of office space as follows:

 

2014   $ 296,734
2015     210,508
2016     211,165
2017     87,985
    $ 806,392

 

The Company incurred lease expense of $393,707 (December 31, 2012 – $398,266; December 31, 2011 - $382,878) for the year ended December 31, 2013.

17. SUBSEQUENT EVENTS
Note 17. SUBSEQUENT EVENTS

Subsequent to December 31, 2013, 50,000 stock options with an exercise price of C$1.27 and 1,289,000 stock options with an exercise price of C$1.32 expired.

2. SIGNIFICANT ACCOUNTING POLICIES (Policies)

These consolidated financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP") in the United States of America and include the accounts of the Company and all of its subsidiaries. All significant intercompany transactions and balances have been eliminated upon consolidation.

The preparation of consolidated financial statements in accordance with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to deferred income tax asset valuations, asset impairment, stock-based compensation, valuation of asset-backed commercial paper and loss contingencies. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgements about the other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between estimates and the actual results, future results of operations will be affected.

Cash and cash equivalents includes cash in banks, money market funds, and certificates of term deposits with maturities of less than three months from inception, which are readily convertible to known amounts of cash and which, in the opinion of management, are subject to an insignificant risk of loss in value. The Company had $46,701,216 in cash at December 31, 2013.

Long-term investments in companies in which the Company has voting interests of 20% to 50% or where the Company has the ability to exercise significant influence, are accounted for using the equity method. Under this method, the Company’s share of the investees’ earnings and losses is included in operations and its investments therein are adjusted by a like amount. Dividends received are credited to the long-term investment accounts.

 

Other long-term investments are classified as "available-for-sale" investments and unrealized gains and losses on these investments are recorded in accumulated other comprehensive income as a separate component of stockholders’ equity, unless the declines in market value are judged to be other than temporary, in which case the losses are recognized in income in the period. Gains and losses from the sale of these investments are included in income in the period.

Equipment, consisting of office, computer, field equipment and buildings, is recorded at cost less accumulated depreciation. Depreciation is recorded on a declining balance basis at rates ranging from 20% to 30% per annum.

Costs of exploration and costs of carrying and retaining unproven properties are expensed as incurred. The Company considers mineral rights to be tangible assets and accordingly, the Company capitalizes certain costs related to the acquisition of mineral rights.

The Company records the fair value of the liability for closure and removal costs associated with the legal obligations upon retirement or removal of any tangible long-lived assets where the initial recognition of any liability will be capitalized as part of the asset cost and depreciated over its estimated useful life. To date, the Company has not incurred any asset retirement obligations.

Long-lived assets are continually reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the discounted carrying amount of the assets exceeds the fair value of the assets.

The Company applies the fair value method of accounting for all stock option awards, whereby the Company recognizes a compensation expense for all stock options awarded to employees, officers and consultants based on the fair value of the options on the date of grant, which is determined using the Black Scholes option pricing model. The options are expensed over the vesting period of the options.

The Company measures the fair value of financial assets and liabilities based on GAAP guidance which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

 

Under GAAP, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value hierarchy is also established, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

 

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Quoted prices for similar assets and liabilities in active markets or inputs that are observable.

Level 3 – Inputs that are unobservable (for example cash flow modelling inputs based on assumptions).

The Company follows the asset and liability method of accounting for income taxes whereby deferred income taxes are recognized for the deferred income tax consequences attributable to differences between the financial statement carrying values of existing assets and liabilities and their respective income tax bases (temporary differences). Deferred income tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is included in income in the period in which the change occurs. The amount of deferred income tax assets recognized is limited to the amount that is more likely than not to be realized.

The functional currency of the Company is the Canadian dollar. Accordingly, monetary assets and liabilities denominated in a foreign currency are translated at the exchange rate in effect at the balance sheet date while non-monetary assets and liabilities denominated in a foreign currency are translated at historical rates. Revenue and expense items denominated in a foreign currency are translated at exchange rates prevailing when such items are recognized in the statement of operations and comprehensive loss. Exchange gains or losses arising on translation of foreign currency items are included in the statement of operations and comprehensive loss.

 

The Company follows the current rate method of translation with respect to its presentation of these consolidated financial statements in the reporting currency, which is the United States dollar. Accordingly, assets and liabilities are translated into United States dollars at the period-end exchange rates while revenue and expenses are translated at the prevailing exchange rates during the period. Related exchange gains and losses are included in a separate component of stockholders’ equity as accumulated other comprehensive income.

Basic net loss per share is computed by dividing the net loss for the period attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share takes into consideration shares of common stock outstanding (computed under basic loss per share) and potentially dilutive shares of common stock. Diluted net loss per share is not presented separately from basic net loss per share as the conversion of outstanding stock options and warrants into common shares would be anti-dilutive. At December 31, 2013, the total number of potentially dilutive shares of common stock excluded from basic net loss per share was 14,400,500 (December 31, 2012 - 9,223,000; December 31, 2011 - 9,135,500).

Certain comparative figures have been reclassified to conform with the current year’s presentation.

The accounting pronouncements issued by the Financial Accounting Standards Board during the year ended December 31, 2013 were not applicable to the Company.

5. EQUIPMENT (Tables)
Equipment
  December 31, 2013   December 31, 2012  
          Accumulated     Net Book           Accumulated     Net Book  
    Cost     Depreciation     Value     Cost     Depreciation     Value  
                                     
Office equipment   $ 92,057     $ 64,123     $ 27,934     $ 122,931     $ 90,900     $ 32,031  
Computer equipment     459,426       349,636       109,790       523,893       353,944       169,949  
Field equipment     251,604       144,786       106,818       540,422       274,694       265,728  
Buildings     246,540       202,139       44,401       280,936       209,077       71,859  
    $ 1,049,627     $ 760,684     $ 288,943     $ 1,468,182     $ 928,615     $ 539,567  
6. MINERAL PROPERTY INTERESTS (Tables)

Capitalized mineral property acquisition costs are summarized as follows:

 

   

December 31,

2013

   

December 31,

2012

 
             
USA            
Ann Mason   $ 47,495,218     $ 55,752,523  
Lordsburg     494,171       990,797  
Other     282,738       302,262  
Total USA     48,272,127       57,045,582  
                 
AUSTRALIA                
Blue Rose JV     534,438       571,342  
Total Australia     534,438       571,342  
                 
Total all locations   $ 48,806,565     $ 57,616,924  

 

Expensed exploration costs are summarized as follows:

 

   

Year Ended

December 31,

2013

   

Year Ended

December 31,

2012

   

Year Ended

December 31,

2011

 
                   
US   $ 3,940,264     $ 5,857,999     $ 14,088,428  
Mongolia     1,355,493       1,964,883       3,255,588  
Other     807,235       411,472       335,158  
                         
Total all locations   $ 6,102,992     $ 8,234,354     $ 17,679,174  

 

9. COMMON STOCK (Tables)

Stock option transactions are summarized as follows:

 

      Number of Options Weighted Average Exercise Price (C$)
Balance at December 31, 2010                   9,292,800                                2.09
   Granted                        575,000                                2.77
   Exercised   (427,147)                                1.66
   Cancelled   (157,153)                                1.32
   Forfeited   (148,000)                                2.31
Balance at December 31, 2011                   9,135,500                                2.16
   Granted                     1,882,000                                1.22
   Expired   (1,177,500)                                2.14
   Forfeited   (617,000)                                2.05
Balance at December 31, 2012                   9,223,000                                1.98
   Granted                     7,560,000                                0.47
   Expired   (2,379,500)                                1.80
   Forfeited   (3,000)                                1.25
Balance at December 31, 2013                 14,400,500                                1.22

 

At December 31, 2013, the following stock options were outstanding:

 

Number of Options

Exercise

Price

(C$)

Aggregate Intrinsic Value (C$) Expiry Date Number of Options Exercisable Aggregate Intrinsic Value (C$)
             
               50,000         1.27                        -   January 18, 2014                 50,000                        -
          1,289,000         1.32                        -   February 12, 2014            1,289,000                        -
          1,472,500         2.60                        -   December 29, 2014            1,472,500                        -
             300,000         2.34                        -   September 22, 2015               300,000                        -
          1,372,500         2.86                        -   November 22, 2015            1,372,500                        -
             200,000         3.47                        -   January 4, 2016               200,000                        -
             125,000         2.94                        -   March 8, 2016               125,000                        -
             150,000         2.05                        -   July 7, 2016               150,000                        -
             100,000         2.23                        -   July 15, 2016               100,000                        -
          1,681,500         1.25                        -   January 6, 2017            1,681,500                        -
             100,000         0.73                        -   June 18, 2017               100,000                        -
          4,985,000         0.56                        -   March 15, 2018            4,985,000                        -
               50,000         0.32                        -   April 9, 2018                 50,000                        -
             150,000         0.34                        -   June 27, 2018               150,000                        -
          2,375,000         0.30                23,750   December 19, 2018            2,375,000                 23,750
        14,400,500    $            23,750              14,400,500  $             23,750
    Year Ended
December 31,
2013
    Year Ended
December 31,
2012
    Year Ended
December 31,
2011
    Cumulative to
December 31,
2013
 
Exploration   $ 294,676     $ 267,452     $ 146,343     $ 4,369,529  
General and administration     1,127,621       940,426       844,818       19,806,528  
    $ 1,422,297     $ 1,207,878     $ 991,161     $ 24,176,057  

The following weighted-average assumptions were used for the Black-Scholes valuation of stock options granted:

 

    December 31, 2013     December 31,  2012     December 31,  2011  
                   
Risk-free interest rate     1.30 %     1.13 %     2.06 %
Expected life of options (years)     4.3       4.9       4.2  
Annualized volatility     75 %     73 %     74 %
Dividend rate     0.00 %     0.00 %     0.00 %

 

10. SEGMENT INFORMATION (Tables)
SEGMENT INFORMATION

Geographic information is as follows:

 

    December 31, 2013     December 31, 2012  
             
Identifiable assets            
   USA   $ 49,405,542     $ 58,094,222  
   Canada     45,822,245       3,953,053  
   Australia     1,642,736       1,487,117  
   Mongolia     504,408       613,723  
   Other     20,174       25,415  
    $ 97,395,105     $ 64,173,530  
11. INCOME TAXES (Tables)

A reconciliation of income taxes at statutory rates with the reported taxes is as follows:

 

                   
    Year Ended December 31, 2013     Year Ended December 31, 2012     Year Ended December 31, 2011  
                   
Loss for the year   $ (13,484,781 )   $ (14,866,359 )   $ (21,969,902 )
Statutory rate     25.75 %     25.00 %     26.50 %
Expected income tax recovery     (3,472,331 )     (3,716,590 )     (5,822,024 )
Permanent differences and other     (78,811 )     270,521       (22,083 )
Difference in foreign tax rates and enacted tax rates     (366,039 )     (577,544 )     (1,152,540 )
Change in valuation allowance     1,611,239       4,353,383       2,014,763  
Withholding taxes     243,186       -       152,190  
Total income tax expense (recovery)   $ (2,062,756 )   $ 329,770     $ (4,829,694 )
                         
Current income tax expense     319,112       -       152,190  
Deferred income tax expense (recovery)     (2,381,868 )     329,770       (4,981,884 )
Total income taxes   $ (2,062,756 )   $ 329,770     $ (4,829,694 )

The significant components of the Company’s deferred income tax assets and liabilities are as follows:

 

             
    Year Ended December 31, 2013     Year Ended December 31, 2012  
             
Deferred income tax assets:            
Non-capital loss carry forward   $ 20,423,498     $ 18,940,044  
Resource expenditures     9,278,934       9,116,317  
Equipment     144,776       127,684  
Share issue and legal costs     149,596       248,806  
Other     349,379       317,704  
      30,346,183       28,750,555  
Valuation allowance     (23,973,665 )     (22,362,426 )
Net deferred income tax assets   $ 6,372,518     $ 6,388,129  
                 
Deferred income tax liabilities:                
Mineral property interests   $ (13,713,034 )   $ (16,110,513 )
Net deferred income tax liabilities   $ (13,713,034 )   $ (16,110,513 )
                 
Net deferred income tax liabilities   $ (7,340,516 )   $ (9,722,384 )
13. ACCUMULATED OTHER COMPREHENSIVE INCOME (OCI) (Tables)
ACCUMULATED OTHER COMPREHENSIVE INCOME
   

Year Ended

December 31,

2013

   

Year Ended

December 31,

2012

     

Year Ended

December 31,

2011

 
                     
Accumulated OCI, beginning of period:                    
Currency translation adjustment   $ 3,253,019     $ 1,901,351